9 - Trustees: Appointment, Removal, and Retirement Flashcards
What should the settlor consider when appointing trustees for a trust?
The settlor’s most important decision when setting up a trust is whom to appoint as the trustee(s).
The trustee is under a duty to look after (and invest) property for the benefit of others.
The settlor must carefully consider who best can discharge this duty, particularly where the trust is to last for a significant period of time:
- Is it a family member who is close to the beneficiaries and can be trusted to look after their interests?
- Is it an independent professional who understands how a trust works and the relevant duties with which a trustee must comply?
- Or is it best to appoint a mixture of both?
What happens if a trustee is no longer able to continue their role?
Once the settlor names the trustees they want to appoint in the declaration of trust, they must consider what happens if a trustee is no longer able to continue their role, whether through illness, death, or simply lack of interest.
This involves understanding:
- Who can be a trustee.
- How trustees are appointed, the circumstances in which they can retire, and the circumstances in which other people can compel trustees to step down.
- Whether trustees can appoint a ‘deputy’ to stand in for them should they need to take a short break.
Who can be a trustee?
- Most adults with mental capacity can be appointed to act as a trustee.
- A company can act as a trustee, whether alone or in conjunction with human trustees, provided it is authorised to do so by its constitutional documents.
- ‘Trust corporations’ are corporate trustees that carry out trust business for profit.
What are the minimum and maximum number of trustees for a trust?
- Trusts over land should have at least two human trustees or a sole trust corporation to ensure that, if the trustees need to sell the land, a buyer can purchase it safe in the knowledge that any beneficial interests have been overreached.
- Trusts of personalty can have a sole trustee, although it is generally better to appoint more than one trustee to ensure that each trustee can supervise what the other is doing.
- Trusts over land cannot have more than four trustees, while trusts of personalty can have more than four trustees, though this may not be practical or cost-efficient for many trusts.
- As express trusts can involve both land and personalty, best practice is to ensure there are always between two and four trustees in office at any time.
How can a trustee retire under the Trustee Act 1925?
While the declaration of trust may contain express powers for trustees to be appointed, replaced, or removed, statute provides wide powers in this regard, and it is relatively rare for trust documents to contain additional powers.
Section 36(1) TA 1925 allows a trustee to retire, provided the retiring trustee is replaced by a new trustee. The new trustee is appointed by:
- The person nominated in the trust instrument to exercise the s 36 power.
- If none, the continuing trustees (which includes the retiring trustee if they are willing to join in the appointment).
The appointment must be in writing, and it is advantageous to use a deed because, under s 40 TA 1925, a deed automatically vests the trust property (apart from company shares and some limited forms of property) in the continuing and new trustees.
Section 39 TA 1925 allows a trustee to retire without being replaced if:
- There will be two trustees or a trust corporation left.
- The trustee retires by deed.
- The other trustees consent by deed.
Is a retiring trustee liable for breaches of trust?
- A retiring trustee remains liable for their own breaches of trust.
- They will not be liable for future breaches unless they retired to facilitate those breaches.
What happens if a trustee retires but fewer than two human trustees remain?
- If a trustee retires and fewer than two human trustees would remain, the trustee cannot retire under s 39 TA 1925.
- A replacement trustee must be appointed under s 36(1) TA 1925.
What are the provisions under the trust instrument and s 36(1) of the Trustee Act 1925 for removing and/or replacing a trustee?
Express power in the trust instrument: Though unusual, the trust instrument may contain an express power to remove or replace trustees.
If not expressly provided for,** section 36(1) of the Trustee Act (TA) 1925**:
Grounds for replacing a trustee:
- The trustee is dead.
- Remains outside the UK for more than 12 months.
- Desires to be discharged (retire).
- Refuses to act (disclaims).
- Is unfit to act.
- Is incapable of acting (e.g., mental or physical incapacity).
- Is a minor.
Who can effect the replacement?
The person nominated in the trust instrument to exercise the s 36 power, or if none:
- The continuing trustee(s), including a retiring trustee if willing to join in the appointment.
- The PRs of the last surviving trustee if all trustees have died.
Appointment must be in writing. A deed is advantageous (s 40 TA 1925) as it automatically vests the trust property (excluding company shares) in the continuing and new trustee.
What are the provisions under s 41 of the Trustee Act 1925 and s 19 of the TLATA 1996 for removing and/or replacing a trustee - court and beneficiary removal?
Section 41 of the TA 1925:
- The court will replace a trustee if it is expedient to do so and it is otherwise difficult or impractical to appoint a replacement without the court’s assistance.
- The court’s intervention is necessary because it is not in the best interests of the trust for the trustee to continue. Mere dislike of a trustee is generally insufficient.
Section 19 of the TLATA 1996:
Beneficiaries can serve a written direction for trustee retirement and appointment if:
- The trust instrument does not exclude s 19.
- The beneficiaries are of full age, capacity, and absolutely entitled to the trust property.
Under s19, the trustee must retire by deed if:
- Reasonable arrangements are made to protect their rights.
- There will be at least two trustees or a trust corporation after their retirement.
- Another person is appointed to replace them or the continuing trustees consent to their retirement by deed.
What provisions exist for the appointment of additional trustees?
Express power in the trust instrument: Though rare, the trust instrument may grant power to appoint additional trustees.
If not expressly provided for, section 36(6) of the TA 1925:
- Appointment is made by the person nominated in the trust instrument, or if none, by the continuing trustee(s).
- No more than four trustees may be appointed.
Section 41 of the TA 1925: As with the removal of trustees, the court will appoint an additional trustee if expedient and otherwise impractical or difficult to do so without court intervention.
Section 19 of the TLATA 1996: Beneficiaries can serve a written direction to require the appointment of an additional trustee, provided the same conditions as s 19 for replacement of trustees are met.
What happens upon the death of a trustee under s 18 of the TA 1925?
Under s 18 of the TA 1925:
- If two or more trustees are appointed, they hold legal title as joint tenants. Upon the death of one trustee, the legal title devolves to the surviving trustees.
- If only one trustee remains, they should appoint a replacement trustee under s 36(1) of the TA 1925 to ensure continuity of trust administration.
How can a trustee delegate their functions to an attorney?
A trustee may delegate their functions to an attorney if they are concerned about performing their duties.
Key provisions:
- The delegation must be made by deed in the prescribed form under s 25 of the TA 1925.
- The delegation can last for up to 12 months.
- Written notice of the delegation must be given to all other trustees and anyone with the power to appoint new trustees within seven days.
- The delegating trustee remains automatically liable for the acts or defaults of the attorney as if they were the trustee’s own acts or defaults.
Provide a summary of the appointment, removal, and retirement of trustees.
How many trustees there should be: Generally, a trust should have between two and four trustees in office at any one time.
How trustees can retire from their trusteeship:
In the absence of any express provision in the declaration of trust, trustees will commonly retire pursuant to the provisions of the TA 1925. If there will be less than two trustees left in office once the outgoing trustee retires, a replacement trustee must be appointed.
How trustees can be removed from their trusteeship:
In the absence of any express provision in the declaration of trust, trustees can be removed by the trustees, the beneficiaries or the court. Different conditions attach to each of these methods of removal.
How additional trustees can be appointed:
In the absence of any express provision in the declaration of trust, additional trustees can be appointed by the trustees, the beneficiaries or the court. Different conditions attach to each of these methods of appointment.
How trustees can delegate their functions to an attorney:
If a trustee knows they will not be able to exercise their functions for a certain period of time, they should delegate those functions to an attorney. However, they should choose their attorney with care, because they will remain liable for the acts of that attorney
